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What is your reckon our system of government works? It could be similar to this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. End of story. Well, that’s how it operated in the past. No longer.

The Advent of Shadow Tribunals

In the modern era, overseas companies, along with the oligarchs who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals staffed by business advocates. The cases are held in secret. In contrast to domestic courts, these panels allow no opportunity to appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even enterprises based in this country. The door is open only to entities registered abroad.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it may order financial penalties of vast sums, even billions.

This compensation are based not on real financial harm but funds the panel members determine the company would perhaps have made. The state may have to abandon its policy. It will be deterred from passing future laws in that area, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of cases are being brought, as firms take cues from each other, and hedge funds finance suits in exchange for a share of the settlements. The consequence? Democratic sovereignty and popular rule are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the choices enacted by legislatures is that this clause has been inserted – absent public approval, and frequently under an atmosphere of total confidentiality – inside international trade agreements.

A Real-World Instance: The UK Coal Mine

Last year, activists won a great victory at the High Court. The justice ruled that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have had no consequence on our carbon budgets. The incoming administration then withdrew the permission the former government had granted. Now, this success could be compromised by an foreign court reporting to exclusively the corporations bringing the case.

Last August, a corporate entity whose ultimate owners reside in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was established to consider the case.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Who is acting on its behalf challenging the British government? An elected representative, and ex-law officer in the previous government, that great patriot the MP. The administration makes a decision, the national judiciary supports it, then a foreign company disputes it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

A Sanctions Case

Concurrently that the court on the coal mine dispute was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it appears probable that he’ll use the arbitration process to fight the sanctions the UK levied against him following the Russian aggression. He has started suing Luxembourg with similar intent, demanding sixteen billion dollars: half that state's yearly income. Included in the legal team on his side? Cherie Blair, wife of the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen state funds as guarantee for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

False Assurances and Escalating Threats

We were assured that these events could not occur. Previously, a former prime minister, promoting the largest and riskiest of all these agreements, stated: “The UK has signed trade deal upon trade deal and we have never seen a case in the past.” An expert on this matter labelled critics of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “once firms grasp the influence they now possess, they will redirect their efforts from the poorer states to the strong ones” were dismissed with scepticism.

That prediction has now materialised. This year, energy and extraction companies have initiated a historic level of cases against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – state efforts to prevent global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP